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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29778
Experience:  Taxes, Immigration, Labor Relations
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Lev (or whoever answers :)This is a follow-up question

Customer Question

Hi Lev (or whoever answers :)This is a follow-up question to one you answered a few months ago. Following is the original question and your answer, and finally the new question is at the end.QUESTION
I am the successor trustee of a California irrevocable living trust. Both my parents have been deceased for three years. We are now selling the house, which has appreciated approximately $150,000 in the three years since their death. It sold for 1.1 million dollars. The house has been in the name ofthe trust since 2007. Am I free to distribute all the proceeds from the sale to the successors or must the living trust pay capital gains or some other tax before I do so?ANSWER
After your parents passed away - that is not a living trust anymore.
The trust became irrevocable after they passed away - and it is a separated legal and taxing entity.
You are correct that for income tax purposes - the basis of inherited assets is the fair market value of the house when your parents passed away - so-called stepped up basis.So the taxable capital gain will be the difference between the selling price and the basis.You may distribute all funds to beneficiaries - that is not an issue.
However - the trust will file an income tax return - form 1041. Then - taxable income will be passed to beneficiaries and reported on K1 - so each beneficiary will include into individual tax return his/her share of taxable income passed from the trust.So - you might want to inform beneficiaries - so K1 would not be a surprise for them.But funds may be distributed and the trust will NOT have any income tax liability.NEW QUESTION
Do I report the sale of the house on 8949 and use those values on 1041? Are there any other federal forms needed to complete this?Also, what equivalent State of California forms do I need to complete for the same scenario?Thanks!Chuck
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Yes - the sale of inherited property is reported on form 8949.The challenge woudl be to determine the basis...There is no separate reporting on CA for sale transaction, but you will use federal information for the state tax return.So be sure to complete federal tax return first.
Customer: replied 1 year ago.
Thank you. Which information from the federal forms will I be recording on state forms, and on which state forms / lines will I record them? I'm speaking as the Trustee, not as an heir receiving the distributed funds.
Expert:  Lev replied 1 year ago.
on schedule D you report the same information as on form 8949
Expert:  Lev replied 1 year ago. will calculate gain or loss and will transfer that amount toform 541 - line 4 Capital gain or (loss). Enter federal adjusted gross income from Form 1040, line 37That amount includes the gain on the property that is calculated on your federal tax return.There is nothing you need to reported in additional to that..I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.